As a Realtor I see homes every day, and the listing prices don't really register with me the way the price per square foot does. Sadly many home buyers don't know the difference. So I want to help home buyers be more informed. I always say "An educated buyer is an easy buyer to work with." So here are the basics about square foot prices.
Lets look at two homes in neighborhood X. We will assume they were built within a few years of each other and have similar level of finish out and similar sized lots. Both homes are priced at $300K, so they must be the same, right? Not necessarily.
The first home has 2500SF (square feet) and is priced at $300K. It has three bedrooms, two bathrooms and a two car garage. So if you divide $300K by 2500SF you get $120 per square foot.
The second home is also $300K but it has 3000SF and four bedrooms and three full bathrooms, a three car garage, a pool and backs up to a Greenbelt (no neighbors behind). If you take the $300K list price and divide it with 3000 square feet its price per square foot is only $100. So for the exact same price you get another bedroom and another full bathroom, an extra garage space and a pool and a more private lot. So which home is the better value? I think the answer is clear.
Now we have to consider what the comps are. "Comps" or "comparables" are the homes that have sold in that same neighborhood in the last 3 months. Now these homes should be in similar condition and similar size and level of finish out and on a similar sized lot. What I am saying is you can't compare a 1960's home against a 2011 built home even if they are in the same neighborhood because they are not really comparable. There will be a difference in price that could be very significant. For example in Barton Hills neighborhood a 1960's home with 1500SF that has not been updated could go for $250-300K which is basically the lot value. Now a brand new home with 2400SF with GREEN construction and a zero lot line build out could sell for $500-700K. So you can see these homes while in the same neighborhood are not really similar at all.
Since this type of information is not posted on the street corner, home buyers need a Realtor to help. Realtors can give you the current market stats so you can see what the actual market value is for an area. Simply asking a neighbor what they paid for their home is not a reliable way to determine the value of a home. Did they buy at the high? Did they buy after the market crashed? Did they buy from the builder? Did they have an agent help them to negotiate a lower price? Was the home a Foreclosure? Was it updated? Did it have foundation issues? There are many variables which can affect the price of a home.
As Realtors we can see the List price of a home as well as the actual Sold Price. Both numbers are important. This is much like what happens when you buy a car. There is the "sticker price" and the "actual sold price", or what the dealer will take for you to drive that new coupe off his lot. There is usually some wiggle room between these numbers. It will depend on how aggressively the home is priced and how "hot" the neighborhood is. Neighborhoods that are super hot can see homes sold for more than asking price, if there are multiple buyers that want that particular home. A Realtor can help you determine how much to ask off the sticker price because they have access to the Comps of recently sold homes. Please note that Texas is a "Non-Disclose" state, so we cannot post actual sold prices on websites like Zillow or Trulia. This is one of the reasons home-buyers should not take "Zestimates" or Trulia Home Values to heart. They cannot legally provide accurate sold information to the public. This is why Realtor's market reports use the Sold Price Per Square Foot, so we may help educate home buyers without breaking the law. Realtors may only share that specific sold price information on homes with actual clients.
I hope that you have found this information helpful. I wish you the best on your next home purchase! If you need help buying or selling a home please be informed and contact a local Realtor. I am sure you will be glad you did. You don't have to call me, but I hope that you will.
Betina Foreman- Realtor, C.N.E.
(512)771-6318
WJK Realty, Inc.
Austin Texas
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